Until recently the dairy industry in Kenya was
characterised by one major processor, the Kenya Co-operative Creameries (KCC). Before
liberalisation of the dairy industry in 1992, KCC enjoyed a near monopoly of the Kenya
Dairy market. With the emergence of numerous small scale to medium scale dairy processors,
the market has become more competitive. In this competitive market, KCC is facing a
challenge from the new manufacturers while the new manufactures have to compete first
against a well established and large processor like KCC and secondly between themselves
for a slice of the same market: the Kenya consumer.

The survival of individual dairy processors will very much
depend on how successfully they can win consumer confidence in their products. this calls
for knowledge and skills in marketing techniques Most of the newly established small to
medium scale dairy processors have very little or no experience in milk marketing.

In order to assist them improve their marketing skills, the
training programme for small scale dairy sector under project GOK/FAO/TCP/KEN/6611, has
prepared this guide on Milk and Milk products marketing to be used for training and by the
private small scale dairy processors. The emphasis is on practical approaches to marketing
taking into account the real situation existing in Kenya at the present moment.

Marketing may be defined as "the performance of all
business activities involved in the flow of goods and services from the producer to the
consumer".

This implies that there are several categories of key
players in the marketing chain each with its own vested interests. Consumers want to get
what they need at the lowest price possible. producers on the other hand are interested in
getting the highest possible return for their milk. Between them, there are market
intermediaries or middlemen who perform various marketing functions such as transportation
or retailing. Their interest is to make the highest profit possible from their particular
business operation.

A study of the milk marketing system in Kenya has shown
that there are at least 8 different marketing channels as shown below:

Milk Marketing Channels

Number of
intermediaries

Producer-consumer

0

Producer-milk hawker-consumer

1

Producer-processor-consumer

1

Producer-processor-
retailer-consumer

2

Producer-dairy co-operative
-processor- retailer consumer

3

Producer-milk
transporter-processor - retailer-consumer

3

Producer-milk
trader-processor-retailer-consumer

3

Producer-dairy coop - milk
transporter-processor-retailer-consumer

4

The number of intermediaries involved will
have a bearing on both producer and consumer milk prices. The shorter the channel the more
likely that the consumer prices will be low and the producer will get a higher return.

A notable omission in the milk marketing channel obtaining
in Kenya is the absence of wholesalers. Retailers obtain their dairy products directly
from processors.

From the consumer point of view, the shorter the marketing
chain, the more likely is the retail price going to be low and affordable. This explains
why, following the liberalisation of the dairy industry, direct sales of raw milk from
producers to consumers (channel 1) or through hawkers (channel 2) has been on the increase
despite the public health risks associated with the consumption of untreated milk and milk
products. Milk producers may not necessarily benefit from a short marketing chain i.e.
milk processors in channels 5 - 6 may be paying farmers the same price as hawkers.
However, farmers sometimes prefer selling milk to hawkers because other factors such as
prompt payments and inaccessibility to formal market outlets such as producer
co-operatives or lack of near by milk processing factory. The biggest disadvantage of
direct milk sales to consumers by hawkers is the total lack of quality control and the
frequent rate of adulteration of milk with (dirty) water, which is illegal. An efficient
milk marketing chain is one which enable farmers to receive at least 50% of the retail
price of milk.

The price of a product in the market is an important factor
influencing consumer demand. Hence to be marketable, a dairy product must be competitively
priced. This implies that the costs involved in raw material procurement, processing,
packaging, storage, marketing and distribution must be kept as low as possible. generally
the price of a dairy product will involve the following costs:

Cost of raw milk

Cost of raw milk collection and transportation

Cost of processing

Cost of packaging

Cost of marketing and distribution

Taxes and tariffs

Profit margins at each stage of the marketing channel
(Collection, Processing and marketing margins)

In order to arrive at a realistic costing of a product, all
those elements involved at each stage must be carefully calculated on a unit basis. This
is known as Cost Accounting. The table below shows some of the essential cost elements:

The cost can be broadly categorised as fixed
costs and variable costs. Fixed costs include things like depreciation of equipment and
buildings while variable cost include direct expenses such as raw material; marketing
expenses; overhead costs [labour and personnel expenses (see Appendix 1 for complete list
of expenses1)].

It is important that all the cost elements are included in
the calculation of the market value of the product. Overpricing can lead to
uncompetitiveness of the product while under pricing can cause financial loss and eventual
collapse of the business.

1

Technoserve, 1995. Mala Manual: A Guide for
Establishing and Operating Small Scale Enterprises for the Production of Cultured Milk.

Information is required at all levels in the marketing
channel. Before you decided to process and market any dairy product, it is important to
know the potential market for each particular product. This is important to enable the
processor to know which types and when, where and how much of each product to manufacture
and market. It is very crucial because unless goods can be supplied in the right form,
place and times, consumers may not be able to buy. This then requires securing and
utilising market information.

In the absence of comprehensive marketing information
system such as is the case in many developing countries it may be necessary for each
individual processor or through their organisation to organise the gathering and
dissemination of such information. Short market survey and/or Consumer studies are useful
tool for gathering such information.

Before one decides to invest in the business of milk
marketing and/or processing one should carry out a feasibility study to establish the
economic viability of the planned business. this should include a realistic business plan.